Chapter 3 - Competition Flashcards
What is a platform?
Bringing together two or more parties to create and exchange value through the business rather than trying to create all the value themselves
How do platforms represent a fundamental shift in how businesses relate to each other?
From linear to more networked business models
Can often be very light in assets but generate large revenues
Rather than simply paying for services received, customers both provide value and receive value - value grows as more people use the platform
What are important points worth noting about platforms?
Distinct types of customers
Direct interaction
Facilitating
Distinct types of customers
The unique dynamics of platforms arise because they bring together different parties that each play different roles and contribute and receive different kinds of value
Direct interaction
The two or more sides must interact directly - that is, with a degree of independence
What are four types of platforms
Exchange
Transaction systems
Advertising supported media
Hardware/software standards
Exchange
Bring together two distinct groups of customers for a direct value exchange, with each group attracted by the number and quality from the other side
Transaction systems
Act as an intermediary between different parties to facilitate payments and financial transactions
Advertising supported media
The platform plays an additional role of creating media content that is attractive to consumers
As the platform attracts more people, its value to advertisers increases
The advertisers, in turn, provide value to the audience by reducing or eliminating the cost of the content for them
Hardware/software standards
Provide a uniform standard for the design of subsequent products to enable their interoperability and benefit the ultimate customer
Direct network effects (or same side network effects)
Occur when the increasing number of customers or suers of a product drives an increase in value or utility for that same type of user
Indirect network effects (or cross slide network effects)
When an increase in the number and quality of customers on one side of the platform drives increasing value for customers on the other side of the platform
Are indirect network effects reciprocal?
Not always
In advertising supported media, the indirect network effects usually run only one way: as the number of readers increases for a newspaper, its value to advertisers increases as well, but increasing the number of ads in each issue does not directly increase the value for readers
What are key elements of platforms?
Frictionless acquisition
Scalable growth
On demand access and speed
Trust
Frictionless acquisition
No longer a need to negotiate terms for each additional participant in a multisided platform, removing a critical bottleneck to growth
What is the biggest impact of digital technology?
The size of the businesses involved
What is the downside to network effects of platforms?
It can take a lot of capital to bring parties to the table at sufficient scale
What are competitive benefits of platforms?
Light in assets
Scaling fast
Winner takes all
Economic efficiency
Light in assets
Both capital and operating costs are low
These companies also tend to have few employees for the revenue they generate because their customers do much of the work that employees would do in a vertically interpreted business
Can achieve high operating margins on a percentage basis
Scaling fast
Low operating costs, combined with a scalable cloud computing architecture
Ability of platforms to increase revenue with relatively slow employee growth
Winner takes all
Customers would rather sign up for a platform that already has broad acceptance or many other users.
What are 3 factors that need to be present for winner takes all?
Multihoming
Indirect network effects are strong
Feature differentiation is low
Multihoming
Using more than one platform 0 is hard for the customer
